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Tower market overviews for the countries in which deals have been closed

A raft of Airtel African tower acquisitions, announced in 2014, have recently closed. Five transactions have been confirmed in recent weeks, raising over US1.3bn, of which the sale of approximately 4,700 Nigerian towers to American Tower Corporation accounts for US$1.09bn.

Of the tower transactions in thirteen countries announced last year, five have now closed. However three have lapsed: Airtel has cancelled the tower sales to Helios Towers Africa in Tanzania, Chad and, most recently, the DRC. While no specific reason was given by Airtel for the cancellation of these transactions, Airtel’s recent admission that they are in talks with Orange to sell the French MNO their operations in Burkina Faso, Chad, Congo Brazzaville and Sierra Leone may have something to do with the tower deal cancellations.

TowerXchange believes that the remaining five deals include Eaton’s acquisition of towers in Burkina Faso, Kenya, Malawi and Niger, and IHS’s acquisition of Airtel’s Zambian tower portfolio.

This leaves Airtel with towers in Gabon, Madagascar, Sierra Leone, The Seychelles, DRC, Chad and Tanzania. TowerXchange believes that Airtel may retain towers in The Seychelles and Madagascar. The Seychelles is too small a market to for a towerco to reach scale, and the footprint and relationships of TowerCo of Madagascar would make it difficult for a new entrant tower company to make a case to invest in Madagascan towers.

“We would like to inform that as on date, we have completed the sale transactions in five countries while in (three), the agreements have lapsed. For the balance… the process is on and we hope to have the finality in the coming few months on the transactions proposed, subject to availability of all approvals and completions of the conditions precedent. The total proceeds from the transactions already concluded are over US$1.3bn which would be utilised for reducing the debt of the Company.” – Bharti Airtel

With a prospective sale of Airtel OpCos to Orange, and with Orange tending to prefer to outsource towers under Manage with License to Lease (MLL) deal structures, rather than outright sales and leasebacks, it would make sense that Airtel has had to step back from several tower transactions. Helios Towers Africa (HTA) were geared up and ready to assume control of Airtel’s assets in Chad, so, until the talks with Orange were revealed, there was no apparent operational reason for the cancellation of Airtel’s deal with HTA in Chad. However, the other three countries in which Orange are known to have entered exclusive negotiations to acquire Airtel OpCos (Congo Brazzaville, Burkina Faso and Sierra Leone) each feature different tower scenarios. HTA successfully closed their tower deal with Airtel in Congo Brazzaville, and they are currently integrating assets. Meanwhile, Eaton Towers has established operations in Burkina Faso in readiness to absorb the Airtel towers, but the deal has neither been closed nor cancelled. Finally, it seems that Airtel’s towers in Sierra Leone had been excluded from their tower monetisation programme from day one because Airtel were reluctant to allow aggressive competitor Africell to access their sites. So there is no clear pattern here – does a tower deal closing mean Airtel will retain their MNO license in that country? Apparently not. Does the cancellation of a tower deal mean Airtel is considering selling their MNO license to Orange or other potential counterparts? We’re not sure.

TowerXchange believes there are more twists to come in this saga. Whether the towers are part of an OpCo owned by Airtel or by Orange, we still think the towers in Chad are destined to be owned or at least operated by HTA: they now know the market intimately, and they have a strong partnership with the other major MNO in the country, Millicom.

The future of Airtel’s towers in DRC, reportedly the country’s largest network, remain less certain. HTA were the most obvious prospective counterpart, having been on the ground in DRC since 2011, yet DRC is not (currently) part of the exclusive negotiations between Airtel and Orange. Indeed, Orange already has an operation in DRC, where they reviewed the potential divestiture of towers, and concluded that outsourcing towers was the right strategy for that market. If Airtel were to entertain offers for their OpCo in DRC, MTN may also be interested.

Meanwhile, it seems unlikely any other tower company would want to compete with Helios Towers Tanzania (HTT), which has built up a strong position in the market since acquiring the assets of Tigo in 2010 and adding those of Vodacom Tanzania in 2013. Airtel’s tower assets in Tanzania are at growing risk of being stranded on their balance sheet: market leaders Vodacom and Tigo are investing heavily in their networks in readiness for the aggressive market entry of Viettel, who themselves seem likely to co-locate to accelerate time to market. With every passing day, HTT is building more towers and adding more co-locations for Airtel’s competitors in Tanzania – it seems to TowerXchange that the next twist in the Tanzanian tower saga is yet to be revealed.

Airtel African tower sale: What has closed, and who is buying what?

Snapshots of the tower markets where the Airtel deals have closed

Nigeria: American Tower has acquired ~4,700 towers in Nigeria for US$1.09bn. The Nigerian towers were always the crown jewels in the Airtel tower sale, accordingly they’ve attracted a 33% better per tower valuation in Nigeria than in the rest of SSA. The acquisition of ~4,700 towers gives American Tower 15% of Nigeria’s towers, a market which is dominated by IHS (which owns 16,222 towers, or 52% of the towers in Nigeria), and which supports several smaller towercos including Helios Towers Nigeria, SWAP, BCTek and Hotspot Network Towers (in total representing 10% of the country’s towers). Operators retain 23% of Nigeria’s towers, most of which are Globacom’s, which Mike Adenuga seems reluctant to sell, plus 500-600 NATCOM towers and a residual 600 towers retained by Etisalat. Although Nigeria is Africa’s most profitable and largest mobile market, with 139.2mn* connections, SIM penetration is just 77%* and multi-SIMing is rife. Mobile broadband penetration is at 17%*.

Estimated tower ownership in Nigeria

Rwanda: IHS have confirmed the purchase of Airtel’s Rwandan towers, following their acquisition of all of MTN Rwanda’s towers in 2013. With IHS forecasting to build around 50 towers in 2015, their Rwandan tower count will be around 800 by the year end. IHS is the sole towerco operating in Rwanda. Rwanda is home to three tier one MNOs, so has no shortage of credit worthy tenants. MTN leads the market, followed by Tigo and Airtel. All three of Rwanda’s MNOs, plus ten different ISPS, have partnered with open-access LTE network oRn, a joint venture between the Rwandan government and KT Corp, which was launched in November 2014. SIM penetration in Rwanda is just 61%*, with 28%* of users on mobile broadband.

Congo Brazzaville: Helios Towers Africa will hop over the Congo river (not literally of course) into Congo Brazzaville, with obvious potential to share resources HTA’s neighboring operations in DRC and with the potential acquisition of towers in Gabon. Congo B saw in-market consolidation with Airtel’s acquisition of Warid vaulting them over MTN to become market leaders. Airtel has since announced that they have entered into exclusive negotiations about the potential sale of the Congo B OpCo to Orange. Bintel’s Azur are ranked a distant third. Regulator ARPCE has been applying pressure to MTN and Airtel to invest in improving coverage and QoS. SIM penetration reached 100%* in Congo B in Q4 2014, while mobile broadband penetration is only at 7%*.

Ghana: Eaton Towers is already active in Ghana, where they will add Airtel’s towers to the Vodafone towers they have managed with license to lease since 2010. At the TowerXchange Meetup Africa 2014, Eaton reported that the Airtel tower portfolio had “minimal overlap” with their existing locations. There are three major towercos active in Ghana, which have been snapping up tenancies for over three years. Back in 2010, Helios Towers Africa setup a joint venture towerco with Millicom Tigo as minority partners, to which 750 towers were transferred. Shortly afterward Eaton Towers closed their deal, also for 750 towers, with Vodafone Ghana. Then American Tower set up another joint venture with MTN to which 1,876 towers were transferred (ATC Ghana now markets 2,038 Ghanaian towers).

LTE licenses have, to date, been restricted to companies with at least 70% Ghanaian ownership. Pressure on capex and time to market has compelled several of Ghana’s newly licensed LTE operators to lease rather than build passive infrastructure. Tenancy ratios are now approaching, even exceeding, 2.0 in urban Ghana but remain closer to 1.5 in rural areas. Provision of energy is now the responsibility of all the towercos operating in Ghana. Like any international business trading in Ghana, towercos have had to deal with the continuing devaluation of the Ghanaian Cedi. SIM penetration in Ghana had reached 113%* by Q1 2014, with mobile broadband penetration at 24%*.

Mobile voice market share, Ghana

Uganda: Eaton Towers will be adding Airtel’s Ugandan towers to the 700 towers they acquired from Orange and Warid back in 2012. Airtel since acquired Warid, while Orange sold out to Africell. Uganda remains ripe for further in-market consolidation, with seven licensed MNOs. American Tower is also active in Uganda, where they have a joint venture with MTN and currently market 1,256 towers. TowerXchange estimate there are a little over 4,000 tenancies on 2,547 towers in Uganda, suggesting an average tenancy ratio just under 1.6. SIM penetration is just 64%* in Uganda, with multi-SIMing meaning actual penetration is under 50%, with mobile broadband penetration at 11%*.

How the acquisition criteria of Africa’s tower companies might change after 2017

As Airtel’s African tower sales finally begin closing, consolidating and integrating assets will absorb much of 2015 for Africa’s towercos, dragging onto 2016. This means refinancing, IPOs and trade sales of Africa’s three private equity backed towercos (IHS, Eaton Towers and Helios Towers Africa) are unlikely to happen until 2017 at the earliest.

The investment criteria and tower acquisition appetite of the current private equity-backed towercos will differ significantly from the post-refinanced entities after 2017. In their current phase, acquisitions have to make sense now for Africa’s three private equity-backed towercos, which means the anchor tenant in a sale and leaseback must be credit worthy, and a built to suit has to have a clear pathway to a second tenant. This limits their appetite for second tier MNO towers, or for organic growth in low density rural areas where a second tenant may not be viable for several years.

After a nominal 2017 IPO, trade sale or re-financing, Africa’s three private equity backed towercos are likely to be backed by more infrastructure funds and institutional capital. Such entities have more tolerance for a longer holds, with lower initial return. So, for example, if in-market consolidation yields some duplicate locations which the acquiring MNO is interested in selling, in the near-term there may be no obvious pathway to a second tenant as there is another tower a couple of hundred meters away. But as network planning changes in the 3G and, particularly, 4G era, cell splitting is likely to re-ignite demand for such sites. An infrastructure fund might have an interest to ‘buy and hold’ at the right price and in the right market. A PE-backed towerco probably has to pass on such an opportunity.

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